Shehab Gargash’s view of Dubai stocks in 2010

For an assessment of the outlook for Dubai shares in 2010 ArabianMoney spoke to leading local analyst and the CEO of Daman Investments, Shehab Gargash.

He thinks 2010 a ‘tough call’ and ‘not as upbeat as people hoped for six months ago’. There is ‘floor finding’ ahead with the ‘Dubai debt the big X-factor in the crystal ball’.

Actually Mr.Gargash reckons the picture will be much clearer after the results season is over. By then Dubai stocks could be either at a new bottom or clearly on the way back up. But it could go either way, hence the ‘tough call’ for 2010.

Recovery prospects

‘There are two important elements to understanding how soon the recovery will come,’ he says. ‘First, how strong the banks and their balance sheets prove will be a major factor in how fast the private sector will recover.

‘And secondly, while the private sector is well set for a recovery that cannot be said of the public sector with its debt crisis. Going forward we need to see what role the government is going to play in the economy.

‘Perhaps we are going back to the old Dubai business model of co-operation between the government and private sector, rather than the aggressive role assumed by the public sector in the boom.’

Clarification and certainty

Indeed, what Mr. Gargash hopes most for 2010 is that clarification and certainty will emerge in Dubai, and that will put a floor under stock prices. He says the private sector is in fairly good shape, it is the public sector that is over-extended.

‘The public debt is being switched from short-maturity to longer-term debt and a more predictable and coordinated approach. The time is over when every state company did its own thing and we did not have the total picture.’

Summing up the stock market action in 2009, Mr. Gargash points to ‘a tough beginning, aggressive rally’, and then ‘a phase of high volatility’ in the debt crisis.

For 2010 he notes that stock markets are ‘always the first places to show a sign of recovery’, but that ‘uncertainty also always equals volatility’ and that will not go away until the uncertainty has gone.

However, Mr. Gargash is not unduly worried by the prospect of a sell-off in global emerging markets after a very strong rally with the Dubai Financial Market being more locally driven. So it looks as if Dubai stocks will find a bottom in 2010, depending on how long it takes for an adequate resolution of the debt problems.

Relative improvement

Daman’s 43 year old CEO and founder notes that Dubai’s position today is actually a ‘big improvement on a year ago’ when the real estate crash hit home.

At sometime in 2010 it will be time to buy perhaps. And Mr. Gargash thinks market proxy stocks like Emaar and the banks will be worth buying, along with Abu Dhabi real estate companies, the DFM and DP World.

A stock market boom is clearly a long way off. Daman Securities has penciled its own IPO for late 2012, so that might be a period to watch, falling as it does seven years after the last boom and 14 years after the one before that. What goes around comes around!